Nigeria Business & Finance Updates

Banks get richer, customers poorer on depositors’ funds

Ridiculously low-interest rates given on different savings accounts and outrageously high charges paid on loans may get worse as banks make moves to recoup more profits from their customers after the banking regulator slashed most of the charges hitherto imposed on depositors, reports.

Interest rates are falling to all-time low, investigation has shown. This has widened the gap between lending rates and interests.

At some banks visited by our correspondent, interest on savings and fixed deposits was as low as 1.25 per cent while lending rates were as high as 25 per cent.

Similarly, yields on treasury bills in the secondary market have fallen to between 2.5 per cent and 4.9 per cent. About a year ago, the yield on these securities could be as high as 12 per cent.

The Central Bank of Nigeria, in a recent circular to the lending institutions, slashed most of the charges the banks had been slamming on depositors.

Income from these charges has always formed part of the huge profits declared by the banks in their annual reports.

A bank official, who spoke on condition of anonymity, said the banks had been grappling with huge overhead costs and making provisions for bad loans.

With the slash in the CBN charges, he said the only way they could continue to make income was from interests because e-based income had dwindled and could not support their operations.

Another banker acknowledged that the institutions were paying very low interest on savings accounts and charging more on loans but added that there were no general rates for every bank customer.

He added, “It is not true that there is one lending rate for everybody. And there is no one deposit rate for everybody.

“People negotiate deposit rate and lending rates with banks, depending on their particular financial situation.”

The Rector, Institute of Credit Administration, Prof Chris Onalo, expressed worry that the lending rates and deposit rates in Nigerian banks were far apart, and banks were overly commercial-minded, which he noted as detrimental to the economy.

He said, “Why will you be trading with people’s savings and the yield is so low?

“If they want to lend money to those who are in need of it, they do at a very high rate. This cripples the economy.”

Before, he added, savings accounts used to be juicy because of attractive interests on them.

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According to him, banks have conspired to cripple economic growth and make use of people’s funds almost free.

“I think it is a selective thing because I don’t think they can do it to the giants in the economy,” he said.

While urging banks to be ethical, Onalo said they needed to support businesses to grow because bigger growth would bring bigger revenue to the government.

He said, “This kind of sharp practice because of very high appetite for crazy profits should stop because it is not helping anyone.”

A past president, Association of National Accountants of Nigeria, Dr Sam Nzekwe, said depositors used to be attracted to savings and fixed deposits when the interests paid on them were high, but were shunning them now that the banks hardly paid anything on them.

Nzekwe said, “If you compare the interests on savings and fixed deposits with what the banks charge on loans, the gap is too wide. The disparity is too high. So the CBN has to see how to narrow the gap.”

He also observed that most of the loans given to customers became toxic, so the banks were being careful to give out loans.

“For banks to recover, they resort to giving high-interest rates for lending,” he said.

He observed that the banks used to deduct many illegal charges which depleted customers’ accounts.

But with the recent removal of charges by the CBN, he said, “It will affect profitability of the banks. So, what they are doing is to make sure any loan they give now, they collect as many charges as possible to make up for the charges removed by the CBN.

“The CBN should look into all these charges; reduce the benchmark interest rate because if they reduce it, more people may go to bank to look for loans.

“When people go to bank to look for loans, it is like a deathtrap because by the time they calculate all the things they are calculating, if you borrow one million naira, in one year, before you know it, you will owe the bank more than that.

“I don’t see how people will go to bank to borrow at the rate of 24 per cent or 25 per cent. What kind of business will the person do in Nigeria to be able to have such profit that will clear the interest rate? It is not possible.”

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Development economist, Odilim Enwegbara, said the contradictions in lending and deposit rates had left many wondering what could have been responsible for this anomaly.

He said, “From the available figures, interest rates have ‘crashed’ to an all-time low. Surprisingly, the lending rates are still unbelievably dangerously high.

“What this anomaly is showing is that the CBN can’t continue to artificially peg its monetary policy rates.

“It cannot also continue to artificially determine the value of the naira simply because of its so-called monetary policy tightening that is blind inflation fighting-driven.”

He added, “Is it not time we told our commercial banks the hard truth, which is, that their long-term survival does not lie in lending to importers of finished products who only share their huge profits with them?

“It is by supporting local producers of these goods and in doing so, help grow the real sector of the economy with jobs created that they will eventually and sustainably grow their profits.”

According to the CBN’s monthly economic report in November, short-term money market rates traded below the Monetary Policy Rate of 13.50 per cent in the major parts of the review period.

Provisional data indicated that movements in banks’ deposit rates were mixed, while lending rates trended upwards in November 2019.

The weighted average prime lending and maximum lending rates rose by 0.04 percentage point and 0.44 percentage point to 15.11 per cent and 31 per cent respectively, in November 2019.

Consequently, the spread between the average-term deposit and the maximum lending rates widened by 0.4 percentage point to 22.72 percentage points at end- November 2019.

Similarly, the spread between the average savings deposit and maximum lending rates widened by 0.8 percentage point to 27.43 percentage points at end-November 2019.

Punch

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